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Why Do Companies From Emerging Countries Manage Earnings?

Author

Listed:
  • Susana Callao

    (University of Zaragoza, Spain)

  • José I. Jarne

    (University of Zaragoza, Spain)

  • David Wróblewski

    (University of Zaragoza, Spain)

Abstract

This paper provides evidence in terms of the incentives which lead managers from emerging European countries to manage earnings. In particular, we focused on four Eastern European countries: the Czech Republic, Poland, Hungary and Slovakia, as the majority of studies on earnings management in developing countries were based on the Asian emerging market. The market of developing European countries is still barely explored. After we confirmed that managers from emerging European companies manage earnings, we find that within the different incentives which lead managers to earnings management, the avoidance of debt covenants violations is a strong incentive for managers. Additionally, those firms considered as poor investments (with less value) have incentives to manage earnings down as a consequence to opt for market niche. Moreover, emerging Eastern European companies have incentives to flatten earnings of current periods in order to benefit in the future as the source of future nonmanipulated earnings will be insufficient, as they may expect reduced, or at least lower future performance of their companies affected by increasing global competition. Finally, we confirm that privately-owned companies tend to maximize accounting earnings more than state-owned companies because they are in a weaker position related to a specific political and historical factors.

Suggested Citation

  • Susana Callao & José I. Jarne & David Wróblewski, 2017. "Why Do Companies From Emerging Countries Manage Earnings?," Eurasian Journal of Business and Management, Eurasian Publications, vol. 5(2), pages 60-84.
  • Handle: RePEc:ejn:ejbmjr:v:5:y:2017:i:2:p:60-84
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    References listed on IDEAS

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